Your people are your most important asset. It's a business cliche for a reason.
Exactly how valuable are quality employees? One rather inconvenient way to find out is to measure the cost of consistently losing your best.
Employee turnover can be very harmful to a business, and not just in financial terms; it can also impact organisational culture, employee morale and your reputation as an employer.
But there are a number of proven strategies to reduce staff turnover and retain more of your best employees, to enhance your culture, improve your operational efficiency and help you make more money.
What are the costs of high employee turnover? And how can you reduce it? Read on to find out.
What is employee turnover?
Employee turnover is the rate at which employees leave your organisation and are replaced by new hires. Some degree of employee turnover is inevitable, especially in larger organisations.
There are a few ways to categorise employee turnover. It can be:
Voluntary: Employees leave by choice, often for better opportunities, career changes, retirement or personal reasons.
Involuntary: Employees are terminated due to poor performance, redundancy or organisational restructuring.
But perhaps a more illuminating way to categorise employee turnover is functional vs dysfunctional:
Functional: Employees with subpar performance leave, whether voluntarily or involuntarily
Dysfunctional: Your best employees leave (usually of their own volition).
Any employee retention efforts that aim to reduce the rate and cost of employee turnover should primarily focus on the voluntary, dysfunctional variety.
To calculate your employee turnover rate as a percentage, divide the number of employees who left your company over a given period (usually a year) by the number of people you employ, then multiply that by 100.
If a company has 100 employees at the beginning of the year and 10 leave over the course of that year, the turnover rate calculation would be:
(10 ÷ 100) × 100 = 10%
The financial impact of employee turnover
What exactly is the cost of replacing a good employee? It can be a difficult question to answer accurately, not least because of the wide range of both direct and indirect costs that worker turnover can incur, including:
Recruitment costs
Onboarding and training costs
Loss of productivity and organisational knowledge
Impact on client relationships
Potential damage to your reputation as an employer
Then there are the hidden costs of turnover. Top talent tends to make other workers better, so their absence can be acutely felt in everything from team dynamics to employee morale, making it very difficult to calculate the true cost of the loss.
Nevertheless, there have been attempts to get a sense of the average cost of losing an employee in NZ. According to a HR Industry Benchmark Report, in 2022 it took an average of 40 days to fill an open position, and the average cost to hire a new recruit was $23,860.
It's important to note that this figure will vary greatly from organisation to organisation, situation to situation, and only includes the relatively direct costs of the hire. The indirect costs, such as the time it takes to get the new employee up to full productivity, should also be considered.
Employee turnover rates in New Zealand
According to the 2024 New Zealand Staff Turnover Survey Report, the national staff turnover rate has remained relatively stable over the last decade, even through COVID. It currently sits at around 21.4%.
This national figure isn't particularly representative of certain industries. Hospitality, for example, tends to have a far higher rate of turnover (as high as 88%), while the rate in the healthcare industry tends to be far lower.
What's a good figure to aim for? That will depend on the industry you're in, but if you're an organisation with full-time employees in a relatively stable field, a turnover rate of 10-15% is a nice range to aim for (though an even lower number is better).
Common causes of employee turnover
Why do employees leave? Potential reasons are many and varied, and can include:
Low job satisfaction
Poor management or leadership
Lack of career growth opportunities
Uncompetitive annual salary or employee benefits
Work-life balance issues
Organisational culture mismatch
Purely personal reasons
Sometimes an employee's reasons for leaving have nothing to do with your organisation, such as sickness, retirement or moving overseas.
But more often than not, an employer will have some level of impact on a worker's decision to move on. High workforce turnover can be a sign of a few issues within your organisation, including:
Weak or ineffective leadership: Poor decision-making, a lack of vision or ineffective communication.
A toxic workplace culture: Cliques, personality clashes or outright discrimination and bullying.
A lack of opportunity: No clear path to promotion, upskilling or professional growth.
Poor work-life balance: Excessive overtime, unrealistic expectations or a lack of flexibility.
Inadequate compensation: Low salaries, no bonuses and a lack of employee perks.
High stress: Unmanageable workloads, unclear roles and unrelenting pressure.
Poor recognition: A lack of consistent recognition or reward for great work.
Ineffective communication: A lack of transparency, unclear expectations or inconsistent feedback.
Job insecurity: Frequent restructuring, layoffs or unclear company direction leading to anxiety about the future.
Lack of employee engagement: Minimal employee involvement in decision-making.
Insufficient resources: Inadequate staffing, outdated technology and a general lack of support.
Organisations can often be blind to their own shortcomings, so it's important to proactively identify potential issues with team member dissatisfaction through things like anonymous employee surveys.
Effective strategies to reduce employee turnover
By reducing turnover, you can minimise costs relating to recruiting and training while improving employee morale and productivity. But how do you do it? That will depend on the issues at hand. Here are six areas of focus, and some strategies that you could implement within each.
1. Strengthen your workplace culture
Promote inclusivity and respect: Establish clear guidelines that ensure all employees feel valued and heard, and lead by example.
Encourage teamwork: Place a focus on collaboration and open communication to build strong team dynamics.
Recognise contributions: Implement an employee recognition program, such monthly awards for outstanding efforts.
Provide a healthy work environment: Identify and let go of toxic individuals, create a clear process for addressing workplace conflicts, and support employee well-being.
2. Offer competitive pay and perks
Ensure fair salaries: Conduct regular market research and salary reviews to ensure you're paying your workers at or above the market rate.
Provide meaningful benefits: Offer difference-making benefits like health and wellness programs, KiwiSaver contributions, childcare assistance, employee discount programs and more.
Introduce performance-based incentives: Use bonuses, profit-sharing or a purpose-built employee rewards program to incentivise excellence.
Offer flexible work arrangements: Improve both job satisfaction and productivity by offering remote work, hybrid options or flexible hours.
3. Invest in career development and growth
Create clear career progression paths: Offer structured promotion plans and mentorship opportunities within your organisation.
Provide training and upskilling: Fund or subsidise courses, certifications and leadership training programs that your employees are interested in.
Encourage internal mobility: Allow employees to explore new roles or areas of interest within your organisation.
4. Improve leadership and management
Train managers in effective leadership: Give your leaders the tools and training they need to succeed in critical facets of their jobs like coaching, communication and conflict resolution.
Encourage transparent communication: Implement open-door or open-plan office policies and regular feedback sessions.
Involve employees in decision-making: Give workers a say in company policies, projects or general improvements.
5. Enhance engagement and job satisfaction
Conduct regular employee surveys: Include specific questions on areas of focus, make replies anonymous, address concerns and implement changes based on the feedback.
Organise team-building activities: Strengthen interpersonal relationships within your team through social events and group projects.
Provide meaningful work: Get to know your employees, then align each worker's role with their strengths and professional goals.
6. Reduce stress and burnout
Maintain realistic workloads: Don't overburden workers. Check in regularly to ensure their workloads are appropriate.
Encourage time off: Promote the use of annual leave to give your workers a well-earned break (while also reducing your exposure to potential mountains of accrued leave).
Offer mental health support: Provide access to counselling services, or run wellness programs and mindfulness sessions.
Measuring the success of retention strategies
The first and most obvious way to assess the success of your employee retention strategies is to keep tabs on your employee turnover rate. If the percentage is going down year-by-year or month-by-month, that's perhaps your best sign that your retention strategies are working. On an anecdotal level, if you notice more of your best workers are hanging around, any turnover you do see could be involuntary, functional and necessary.
You can also go directly to the source, asking your employees how they feel about your efforts. There are a couple of formal, quantifiable ways to do so, most notably:
Employee Engagement Score: This assesses employee morale, job satisfaction, and commitment to the company. Workers are asked to give a numbered rating for things like their levels of motivation, whether they see a future with the company, and if they feel valued.
Employee Net Promoter Score: eNPS gives you a sense of your reputation as an employer. Workers are asked a single, simple question: “on a scale of 0-10, how likely are you to recommend this company as a place to work?” The eNPS is calculated by subtracting the percentage of detractors (score 0-6) from promoters (score 9-10). eNPS can range from -100 (all detractors) to +100 (all promoters), but a good score is generally considered +10 to +30, with excellent scores coming in at +50 or more.
Statistics aside, exit interviews can also offer useful insight into issues with high turnover. An outgoing worker will have the freedom to be more honest, and can reveal issues that you may never have otherwise noticed.
Recognise, reward and retain your best workers with 1Team
While simple, recognition is an incredibly powerful tool in your employee retention toolbelt. It inspires motivation and commitment - a simple pat on the back will often do more than a salary hike in terms of retaining your very best workers.
At 1Team we specialise in helping New Zealand businesses recognise and reward their very best workers, to increase retention rates and reduce employee turnover costs.
We grant your high performing team members access to a range of perks, such as savings from New Zealand's leading retailers (Torpedo7, Dulux, Pita Pit, Hirepool, Repco, Warehouse Stationery), all delivered through an app with your branding.
Ready to reduce the time and money spent on employee churn, while keeping more of your best workers? Get started with 1Team today.
